E*TRADE (ETFC) Plunges After Citadel LLC Unloads its Entire Stake

Shares of online brokerage E*Trade Financial Corporation (ETFC: Analysis) plunged this week, after the company's largest shareholder, Citadel LLC, dumped its entire 9.6% stake of the company. Now that E*Trade's two-time savior, which had aggresively pushed the company to sell itself, has abandoned the brokerage, is all hope lost for investors? Daily Chart

Citadel saved E*Trade, the fourth-largest online brokerage by assets, twice in the past, and has aggressively pushed for the brokerage to sell itself.
During the financial crisis in 2007, Citadel invested $2.6 billion in E*Trade through the purchase of a portfolio of troubled loans including home mortgages. Citadel underestimated the depth of the crisis, and two years later, the hedge fund provided the majority of a $1.7 billion debt exchange to save E*Trade from total collapse. E*Trade has been a terrible investment for Citadel, declining over 75% since the latter's initial investment. Citadel made $800 million in gains from the purchase, by buying and selling E*Trade shares, but those gains are a pittance compared to its initial investments. Back in late 2011, Citadel CEO Ken Griffin publicly stated that E*Trade management has "squandered a phenomenal franchise." As Citadel unloads its stake, investors now have little hope to cash in on an acquisition premium. JMP Securities analyst David Trone called the situation a "double whammy," stating that Citadel's stake was "a lot of shares to throw on the market and is also the signal that any hope for a sale has diminished." Citadel's sale of 27.4 million shares marks the first time the hedge fund has sold E*Trade stock since April 2011, when it sold 50% of its stake. At the time, Citadel sold its stake to put its stake under the 10% threshold that separates major stakeholders from individual investors, thus allowing it to assume the role of an activist investor pushing the company to sell itself. When E*Trade refused to sell itself last year, Citadel ousted CEO Steven Freiberg and placed Griffin on the search committee. As a result, E*Trade recently appointed former Barclays PLC chief operating officer Paul Idzik as its seventh CEO (including interim chiefs) since 2007. The brokerage firm still has a $10.3 billion loan on its balance sheet, which it intends to reduce to zero. The loan still accounts for approximately 20% of the firm's total assets, down from roughly half in September 2007. E*Trade has already brought its loan amount down from $32.3 billion in September 2007. The firm expects the loan book to contract by $450 million per quarter through 2013. It is also in the middle of an $8.5 billion plan to deleverage its balance sheet, while cutting costs by $100 million by the end of the year. In other words, the firm is pulling out all the stops to shrink down its loan book to a more manageable size. Shares of E*Trade currently trade at 16.71 times forward earnings, with a 5-year PEG ratio of 0.54. The stock does not pay a dividend. Other News About ETFC E*Trade's Largest Shareholder Citadel Dumps Entire Stake E*Trade shareholders panic as Citadel abandons the struggling brokerage. E*Trade Loses Largest Shareholder as Citadel Sells Out Now that Citadel's out, is E*Trade no longer for sale? Other Stocks in the News Is Zynga Next onYahoo's Shopping List? Is Yahoo thinking of buying Zynga? Is General Electric Burning Bright or Burning Out? Is GE in danger of letting history repeat itself? Copyright 2013 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Mar 15, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2016. Content published with author's permission.

Posted in ...